Monday, September 29, 2008

Connecting the Dots

Today we find ourselves on two watches, one is a death watch and the other a birth watch.

The dollar is on life support and at the same time, the increasing frequency of contractions (see underlined time spans) signals the imminent birth of FreeGold.

Let's connect the dots:

August 4, 2007 - Jim Cramer pleads for a rate cut

Then, for the next seven (7) months, the Fed rate goes down, the dollar goes down, stocks go down and gold goes up. Finally, on March 16th, Bear Stearns collapses.

March 16, 2008 – Bear Stearns collapses and the Fed “surprises” the world with “only” a quarter point rate cut, showing its “hawkish” stance on inflation.

March 17, 2008 – Gold peaks at $1,033/ounce.

Then gold crashes, the dollar rises and stocks rise. But for the next four (4) months, things remain pretty much steady.

Then on July 15th, things change.

July 11, 2008 – INDYMAC bank is seized by the FDIC.

July 14, 2008 - This document is signed by the Comptroller of the Currency and the Director of the Office of Thrift Supervision.

July 15, 2008 - It is also signed by the Secretary of the Federal Reserve and the Executive Secretary of the FDIC.

July 16, 2008 – The above document is released which tells banks how much capital they must have. This is an international issue known as the Basel II Accord. It requires banks to be properly capitalized or else foreign (European) banks will be forbidden from doing business with them. These guidelines must be met by the end of the fiscal year, 2008, which is September 30, 2008.... TODAY!

July 15, 2008 – Gold again peaks, stocks hit new lows, and the PPT along with the world's Central Banks go into action. For the next two (2) months, stocks go up, the dollar goes up, and gold goes down. This is a massive intervention effort to give the remaining banks a chance to get in compliance with Basel II. To get recapitalized. Which didn't quite happen like they hoped.

September 15, 2008 – Lehman collapses. After this event, stocks go down, the dollar goes down, and gold goes up. Things get more intense, almost by the day, as the deadline draws near. For the next two (2) WEEKS breathless and frantic moves rule the day. The largest banks collapse and merge. Congress and Wall Street try desperately to get the taxpayer to pony up a nominal sum which, I assume, is supposed to help them make the deadline of TODAY. Doesn't happen.

Now we have Rosh Hashanah. This takes us into the new Fiscal Year. What does this mean?

We know the dollar is on it's deathbed. And the birthing contractions of FreeGold have gone from 7 months to 4 months, to 2 months, to 2 WEEKS. So what is the next one? If we assume acceleration it would be 2 days, putting us at Thursday or Friday. If we assume a straight progression, it puts us at October 7th, one week into the new Fiscal Year.

So help me fill in the blanks here. I'm starting from a big picture POV, but as they say, the devil is in the details. I will update this article if I think of something else. Please feel free to contribute in the comments.

Hat tip to Ender for his post on USAGold which got me thinking about this. Thanks!

FOFOA

14 comments:

Dave said...

Very interesting analysis. These are certainly "interesting times," to paraphrase the supposed Chinese curse.

Although I have been anticipating and preparing for these days, seeing them come alive actually frightens me.

We are now at one of those critical junctures in history when people seem to make the worst of decisions, some of which result in the death of millions.

Dave

Ender said...

FOFOA,

Those dots are starting to take shape.

If this is true, what can you infer about the future?

Keep in mind that large changes happen at a snail’s pace and that your ‘friend’ predicted that gold may go in hiding for a little while.

Thanks for the kind words.

Ender

FOFOA said...

Dave,

We can think of these dots as peaks and valleys in a sine wave. And right in the middle, between each peak and valley should be a subtle inflection point on the curve, where the curvature changes sign, from convex to concave heading to the next peak or valley. In each case, the actions of the Fed, the PPT, and our Govt. brought about the peak or valley. But it is the very nature of our complex economy that brought about the inflection point, and ultimately forced the next move by the Fed.

The frequency of these oscillations has been increasing. The rate of increase seems to have taken a turn from standard to exponential in the last 45 days. Also, I am guessing that this wave is fractal in nature, meaning that there are many smaller waves following the same pattern that we cannot see, but that drive this larger wave that we can see.

If we look at a Govt. action, or the psychological effect of a Govt. action as having some effect on this feedback loop, then the first effect it could have would be to slow the acceleration from exponential back down to standard. I can see that this may happen. But to expect a reversal from increasing frequency to decreasing frequency seems almost too much to hope for.

As characterized in the Wile E. Coyote video, our Govt. acts in a reactionary, knee-jerk way, which by it's very nature will exacerbate this feedback loop. The kind of decisions which could subtly change what is happening and send us on a different course is most certainly too much to hope for. There are many plans on the internet that could possibly have this effect, but none of them fit the knee-jerk way in which the Govt. reacts. So I don't see much hope for that.

I expect that today and tomorrow we are passing through a subtle inflection point in the curve, as mass psychology absorbs what has happened and shifts ever so slightly in a different direction. And when Congress resumes on Thursday, I expect to see a slight change in Congressional psychology. However I am not sure which direction that will go. In either case, we are all riding on a roller coaster and there are most definitely some G-forces straight ahead.

FOFOA

FOFOA said...

Ender,

Whether you look at the story of Jesus in the Bible or the story of Damien in The Omen, a baby of certain significance is born and then much later emerges on the scene with a worldwide impact. I believe the same is true in this case.

The cornering of physical gold seems more true today than it was back in 1997. Another predicted that one sign that the end of the dollar was near would be that gold and the dollar would rise together. We saw a little bit of that yesterday.

As value exits the markets it must buy dollars, increasing demand and lifting the dollar if only temporarily.

The fact that the gold market is acting the way it is right now is curious. Sure there is probably some manipulation, but I suspect that there is more to it.

Prices fall when supply is greater than demand. In gold, this can be caused from the supply side through "paper gold". But it can also be caused from the demand side. And if the big traders are no longer using the exchanges for their large physical purchases, that could explain what we are seeing. So for those that fear FreeGold, they had better hope that the all-powerful manipulators are actually real, and working hard right now. Because the logical alternative is that FreeGold is being born.

FOFOA

FOFOA said...

Ender,

Do you know who Steve Quayle is? I've never heard of him.

This was posted on GIM:

Steve Quayle, an ardent gold bug, predicted on his Sunday night broadcast that supplies of physical gold and silver will run dry within ten days.

Here's his site.

Ender said...

I’ve read Steve’s words before. He’s a little far out there… like Ender.

I will do my best to help his prediction come true.

FOFOA said...

The following is an excerpt of a warning put out on June 16, 2008 by LEAP/E2020 a European think tank:
Link

4. Creating a currency basket to determine the price of energy (oil in particular)

The time of the Dollar as the unique currency for oil transactions, is already over. As anticipated by our team at the beginning of 2006, from Russia to Iran, Venezuela, and soon the Gulf's petromonarchies, all oil producing countries are speeding up the pace of diversification out of the dollar for their transactions. The question is no longer whether “the US Dollar will lose its status of single currency for oil transactions”, but whether “this evolution will happen chaotically”, as it is case now, or “organisedly”. According to LEAP/E2020, the answer is clear: the evolution must be organised because current chaotic developments are partly responsible for the sudden hikes in energy prices contributing to the general instability of our planet. It is just as obvious for our researchers that everything must be done to avoid the Euro from being substituted to the US Dollar. Two reasons to this statement:

. on the one hand, being energy's sole exchange currency is a curse on the long-run, as proved by the United States today, because it carries a country along the way of facility and inadaptability to changes of reality, thus creating the conditions for severe crises to happen in the future for the country and its partners.

. on the other hand, for oil-producers themselves, this apparent simplicity conveys medium-to-long term problems of over-dependence to one country and one economy alone.

Therefore it is in the interest of neither the Europeans nor oil-exporting countries to turn the Euro into the heir of the Dollar.

On the contrary, it seems to our team that it is in everyone's most obvious interest to base the price of energy, oil in particular, on a basket of currencies reflecting at best the reality of the global economy and energy market. This basket of currencies could consist of currencies representing the main economies of the planet (Euro, Dollar, Yen, Yuan, Real...), and of the main energy producers (Rouble, future Gulf States common currency… ), allowing a balancing process every ten years.

According to LEAP/E2020, if such an initiative is not planned by the beginning of 2009, interweaving of Dollar and oil-price crises will entail a serious aggravation of the global economic crisis, as well as a severe increase in the risk that an armed conflict grows over energy stakes.

C. A general stampede in case the two first measures are not implemented by the end of summer 2008

5. Emergency rescue of each region that can be rescued when the global financial system collapses

LEAP/E2020 is convinced that if the first two measures are not implemented by the end of summer 2008, the entire planet will plunge at the heart of the global systemic crisis in the worst possible conditions. In this case, as a result of a paradoxical game of simultaneous causes and consequences, the global financial system will collapse because each major player of this system will undertake to save himself alone, at the expense of the system altogether. Today already, our team noticed that central banks act less and less together, while large dollar reserve holders observe one another to make sure they are not last to get out of the dollar-trap. If the urgent measures we advise are not implemented before the end of this summer, it will be a general stampede on the part of both public and private operators. So to speak, Summer 2008 is the last opportunity to handle organisedly the collapse of the system we inherited from post-1945.

In this case, the European Union, and Euroland in the first place, will take the necessary moves to reduce to the minimum its exposure to the collapse of US real economy and dollar. The United Kingdom, itself dragged down the American crisis, will no longer be able to stop the Europeans from taking these radical measures, i.e. policies decided by the ECB without any consultation of Washington, the substitution of the Euro to the Dollar for European energy purchases (including a quick strengthening of energy ties with Russia), the implementation of privileged processes of monetary and financial cooperation with China and Japan, the reduction of financial operations and flows with the Dollar-zone in order to curb the consequences of the derivative product crisis, and the enforcement of constraining rules regarding the market of financial derivative products.

Asian countries, which have already began their economic, commercial and financial refocusing on their own region, will contribute to spur this type of evolution as they will suddenly break free from the US Dollar, Treasury bonds and other Dollar-denominated assets.

Gulf countries will give up their Dollar-peg by the end of 2008, contributing in their turn to accelerate the US currency plunge and to increase the US trade deficit (as a result of a subsequent rise of oil-prices in Dollar).

FOFOA said...

And the Congressional knee-jerk resumes.

FOFOA said...

Was this the last minute pill that had to be swallowed to prevent the banks from turning into Basel II pumpkins at midnight?

Ender said...

Was it swallowed, or is the SEC just barking?

It’s always easier to beg for a pardon than it is to try to legally change the rules.

We watch to see how the international community reacts. Will they lend money to US banks? Or, better yet, will the rules on their side prevent them from loaning to banks that are too risky?

I, a fellow metal-head, will continue to watch as the lawmakers scramble to make the banks compliant without spooking the heard – we must not have runs.

Non compliance is unacceptable. The lawmakers in the US know how the people will react, and it will not be pretty AND they, as much as the people, do not want a king.

Which way do we turn? Time will tell…

FOFOA said...

--> new post

FOFOA said...

Ender,

Have you read this?

I wonder if Henry C K Liu "knows" Big Trader, or his "friends" for that matter.

Perhaps this thought is not new. But it is new to me.

FOFOA said...

Perhaps not. I just read something else that makes me think possibly not. But it is an interesting thought I will toss into the dustbin for now.

FOFOA said...

http://www.financialsense.com/fsu/editorials/barry/2008/1003.html
This is a good summary of recent bailout events with dates and amounts. A good supplement to Connecting the Dots.

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